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December 07, 2009

Fun eBay Math - what does 1.4 million Cyber Monday transactions mean?

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eBay reported last week that eBay.com saw 1m transactions on Black Friday and 1.4m transactions on Cyber Monday.  I've had a lot of people ask what that means and didn't have time until this weekend to really think about it.  It's always a good exercise and mentally stimulating to have a little fun with eBay math so I 'put a proverbial pin in it' and worked on it this weekend.

The questions generally ranged from - Why is eBay saying it this way?  What is the GMV?  This number sounds good, but is it?  Is a million a lot?

Some correspondents (usually skeptical sellers), believe that eBay is being 'cute' by reporting vague numbers that can be changed as they are not concrete.  For example, even the word transactions is somewhat "squishy" - is that an actual paid for item? What if someone buys 2 items, is that one transaction or two? Heck in the world of compsci, a search is effectively a transaction.

This post assumes that what eBay is talking about when they say transactions are actual paid-for items, one per customer (pretty typical on eBay given there's no 'cart' system).

Missing data points / assumptions made in this post.

To answer the questions the 1m and 1.4m transaction/day datapoints raise we have to do some calculations to determine how this relates to the daily rate of transactions and what-not.  Unfortunately there are several datapoints that eBay doesn't provide regularly needed to compare these numbers to those that eBay does provide, but we can make some educated guesses at these.

First, eBay doesn't tell us the number of transactions the site processes in total.  However we can calculate that from GMV if we know the average selling price (ASP) per transaction because (transactions * ASP = GMV).

For this article, I assume that eBay's ASP is $45.  This is what the ChannelAdvisor data shows (ex-vehicles) and I have read other reports that end up right in this range.

Second, eBay doesn't report the split of GMV (or transactions) across geographies.  They do however report the split of revenues and I believe that to be a safe proxy.  eBay's revenues are 45% us-based and 55% non-domestic.  We'll go with that split in this article. 

With those 'plugs' in place, let's see what this data means.

How many transactions does eBay process on a given day?

Before we measure the scale of the 1/1.4m numbers, we have to understand the normal transaction volume on eBay to establish a baseline.  Unfortunately as best I can tell, eBay does not release transaction data, but they do release GMV data and other elements we can use to back into daily transactions.

If you go to Q3, you find that eBay's global GMV was $12.2b for the Q (ex-autos).

So using that we end up with $12.2b / 90 days = $135m in GMV/day. If we divide $135m by $45 ASP we get 3m transactions on any given day on eBay globally.

All of eBay's PR around Cyber Monday and Black Friday has indicated 'ebay.com' which means US, but they didn't mention if autos are included or not.  All of my math thus far has excluded autos.  Honestly at the transaction level, eBay doesn't sell enough cars (in the thousands) to move the needle on these, but I wanted to point that out for clarity as it could cause the numbers to be slightly apples and oranges.

If we then use the 45% split applied to the 3m transactions/day globally , then we arrive at 1.355m transactions/day on average on eBay US in Q3.

The results are... disappointing?

If that math is correct, Black Friday's 1m transactions were actually 25% below average and Cyber Monday was a paltry 3% above average.  Of course our assumptions could be off here, but they'd have to be off pretty significantly to change these results.  Also they are based off of real-world datapoints so they are far from guesses.

The biggest variable out there is eBay's definition of transaction.  They did base these neat heat map things on this data and I looked at that and best I can tell a transaction is a single sold item.

One last area if discrepancy I can think of is UnPaid Items (UPIs).  UPIs are unique to eBay and the scourge of sellers.  Essentially a buyer can start a transaction on eBay and not pay very easily.  I believe that eBay counts UPIs in GMV (GMV is not complete/paid transactions) and maybe they don't include those in transactions.  The average UPI rate runs in the 10% range (but swings wildly as high as 30% for some) for our customers, so it could be that transactions exclude UPIs and GMV includes UPIs which would cause my numbers to be off by about 10%.  In other words  the 1.35m transactions based off GMV are actually 1.2m 'paid-for' transactions. 

eBay and the Holiday sales period.

If we assume the data is right and eBay didn't have a special Black Friday or Cyber Monday, then is that cause for alarm?  Actually, I don't think so.  I've already mentioned some of the headwinds eBay faces due to the change in the Bing cashback strategy.  Also, for the years I've followed eBay they always are more back-end loaded vs. other online retailers during the holiday period.  My educated guess is that eBay becomes the go-to marketplace when inventories for various items online/offline sell out.  Usually eBay's sales peak around mid December where-as last year, the peak for online retailers ex-eBay was around Cyber Monday.  So eBay has plenty of running room over the next two weeks to completely crush that 1.4m transaction mark.  I'd fully expect them to have a day that was near double that before the end of the year.

What do you think?

eBay strategies readers - do you think eBay was being clever with this metric to make it seem significant when it wasn't or do you think my calculations are off?  Sound off in comments.  I'll update this post if I learn anything new on the topic or if eBay clarifies their definition of a transaction.

Seeking Alpha disclosure - I am long Google and Amazon.  eBay is an investor in ChannelAdvisor where I am CEO.

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